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Prabhu Must Go to the US...
For Trade Talks, Suresh Prabhu Must Go to the US With Sleeves Rolled
The Wire, June 08, 2018
By Pradeep S Mehta, Bipul
Chatterjee and Surendar Singh
India’s trade minister, Suresh Prabhu, will next week be visiting
the United States to discuss inter alia bilateral trade issues, as
his last meeting on the joint Trade Policy Forum (TPF) did not
result in a sound outcome.
Given that the US is our largest export destination, and a strategic
partner, one hopes, that there would be emphasis on making
incremental progress on specific subjects of contention so that
areas of friction reduce.
One of the key objects of Prabhu’s visit should be to resolve the
imbroglio over the continuation of the Generalised System
Preferences (GSP). Under this scheme, many of our exporters enjoy
lesser tariffs on specific exports to the US. The US is likely to
reduce the number of products of dairy, chemical, engineering and
medical devices covered under this programme unless India gives
reciprocal market access and curb barriers to products of their
Surely, Prabhu will underline the importance of GSP for our
bilateral trade ties in view of the jobs that such exports generate
in India and also for strategic reasons – the most important being
China’s ambition for an early conclusion of the Regional
Comprehensive Economic Partnership for Asia and the Pacific.
India is a party to this draft agreement, but the US is not. This is
an imperative for them as both are keen to play a joint strategic
role in the Indo-Pacific region along with Japan and Australia.
Strategic Interests in the Indo-Pacific
India and the US are at a crucial juncture in the ongoing global
economic and strategic transitions. This is because of three
important reasons. First, the centre of global economic power has
shifted from the West to the East where China has emerged as an
indisputable economic and significant military power.Non-tariff
Second, the importance of western-dominated multilateral
institutions, which predominantly played an important role in
shaping global economic and political governance since the Second
World War, continues to shrink. Third, the role of the US dollar as
the reserve currency of the world is being challenged and sooner
than later we may see the emergence of Chinese yuan as an
alternative reserve currency.
These significant developments over the past three decades have
fundamentally changed the economic and strategic power equilibrium
in Asia in general and the Indo-Pacific region in particular. These
are creating several markers on economic and strategic ties between
India and the US and, therefore, the imperative for them for deeper
economic and strategic cooperation to address the challenges that
are emerging in the Indo-Pacific region.
The US recognises that India has the ‘capability and potential’ to
play a bigger role in the Indo-Pacific region as it is inherently
placed at the heart of a large economic and strategic space. India’s
economic and strategic importance to this broader region is
manifold. India is on the verge of becoming the world’s most
populous country; it has a stable democracy with the world’s
sixth-largest economy, third-largest military by personnel strength,
and fifth-largest defence budget; and it is a staunch supporter of
rule of law and a liberal global order.
Therefore, a rising India is very much in the interest of the US and
its increasing role in global trade and financial system will
contribute to global prosperity as it becomes the third largest
economy of the world by 2050. Most importantly, its expanding
economic and strategic role in Asia will provide a balance in the
On the other side, India recognises that the US can play an
important role in the fundamental transformation of its economy to
emerge as a regional power in the Indo-Pacific region with a
prosperous and more equitable society. The US is a valuable partner
and holds an intrinsic value for India’s own domestic development.
It is an important source for its goods, services, capital and
technologies, a host of skilled workforce and it can provide
strategic support to India’s global ambitions.
While deploying more political capital for strengthening their
strategic ties in the Indo-Pacific region, they will have more
traction if such capital is also invested on resolving bilateral
trade issues. On the strategic front, there is strong convergence of
interests, which reflects in a number of areas such as defence,
technology and infrastructure, maritime connectivity, digital
connectivity, cyber security, Malabar naval exercise and the
Quadrilateral Security Dialogue including Australia and Japan. The
fact of the matter is that there is a consensus both in US and
Indian policy circles on the strategic importance of the
Bilateral Trade Issues
However, there are problems in the economic and trade area, as there
is inadequate progress in addressing bilateral trade issues. India
and the US are often at loggerheads on various bilateral trade and
investment-related matters. This can be noted from a series of
developments of the recent past.
has invoked Section 232 (b) of the US Trade Expansion Act of 1962 to
impose 25% import duties on Indian steel and aluminium. However,
this action is not limited to India but to many other countries such
as China, Canada and European Union. The US has also challenged
India in the World Trade Organisation (WTO) for its export subsidies
which are now beyond the permissible limits.
Similarly, India has filed a complaint against the US in the WTO for
its increase in import duties on steel and aluminium and domestic
content requirements for the renewable energy sector in selected
states. Furthermore, there is long list of issues on which both
countries have divergent views. Some of these are related to
intellectual property rights, sanitary and phyto-sanitary standards
and other technical barriers to trade, agriculture subsidies,
electronic commerce, fisheries subsidies.
In other words, both countries have a number of bilateral trade
issues to resolve. A recent report of the United States Trade
Representative (USTR) has flagged issues related to tariffs and
non-tariff barriers imposed by India. It has categorically pointed
out that India is taking undue advantage of the difference between
MFN (most favoured nation) applied rate and bound rate. The gap
allows India to use its trade policy in a protectionist manner.
In 2017, India imposed 50% import duty—the bound rate –on dried pea
from an applied rate of 0%. Likewise, import duties on chick pea and
lentils were increased. The USTR report also raises concerns over
Technical Barriers to Trade (TBT) and Sanitary and Phyto-Sanitary (SPS)
measures imposed by India. For instance, India used a new TBT
measure for the import of toy products which states that all toys
imported into India should be tested at a nationally accredited
conformity assessment facility. This change in regulation may create
problems for US exporters as such accredited laboratories are
located in India and the assessment is expensive and time-consuming.
India, too, faces non-tariff barriers in the US market, which arise
from different laws and regulations relating to national security,
Buy America norms, child labour regulations, and high registration
fee and conformity assessment procedures to adhere to the US
standards while exporting pharmaceutical, food, animal and plant
products. In the recent past, the US imposed anti-dumping duty on
India’s shrimp exports and also included shrimp under the Seafood
Import Monitoring Program (SIMP). It is a measure used by it to
ensure the safety of imported seafood products. Given the
complexities involved in complying with the provisions of SIMP, it
is expected to turn into a barrier to restrict imports of seafood
products into the US.
It is now evident that the existing mechanism with a
product-specific approach under the annual Trade Policy Forum (TPF)
to resolve bilateral trade issues is not working.
Prabhu and his counterpart – Robert Lighthizer, the USTR – should
establish a new subject-based mechanism to achieve convergence on
contentious issues through a granular approach.
Such a mechanism should focus on reasons for divergence on specific
subjects related to our bilateral trade than dealing with larger set
of issues at one point of time.
This can happen if the TPF is strengthened by regular structured
dialogues in task forces/working groups on specific, contentious
subjects. The objective of these dialogues should be about finding
out convergence on ideas and approaches on resolving the differences
and moving forward.
The authors work for CUTS International, a public policy research
and advocacy group.
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